In Canada, raising capital by selling company shares generally requires a massive, expensive legal document called a prospectus. However, private companies can legally bypass this requirement by utilizing specific exemptions under National Instrument 45-106. The most common pathways include the Private Issuer Exemption (selling to family and friends), the Accredited Investor Exemption (selling to wealthy individuals), and the Minimum Amount Exemption (investments over $150,000 CAD).
Every growing Canadian business eventually faces the need to raise capital. Whether you are a tech startup in Waterloo, an oil and gas venture in Calgary, or a real estate development firm in Vancouver, issuing shares in exchange for cash is the most effective way to scale. 📈 However, the moment you attempt to sell shares in your company, you trigger strict provincial securities laws heavily monitored by bodies like the Ontario Securities Commission (OSC) and the British Columbia Securities Commission (BCSC).
By default, Canadian law dictates that any time securities are distributed, the company must file a “prospectus”—a massive, heavily audited disclosure document that takes months to draft and can easily cost hundreds of thousands of dollars in legal and accounting fees. For private companies and startups, a prospectus is financially impossible. Fortunately, the law provides “Safe Harbours.” By structuring your capital raise to fit within specific prospectus exemptions, you can legally secure funding quickly and affordably. This guide outlines the vital exemptions used by Canadian private companies.
Step-by-Step Process for Raising Capital via Exemptions
Securities laws in Canada are harmonized under a federal framework known as National Instrument 45-106 (NI 45-106) Prospectus Exemptions. To legally raise money without going public, you must follow these steps.
Step 1: Use the Private Issuer Exemption
If you are a young startup raising your first seed round, the Private Issuer Exemption is your primary tool. To qualify as a “private issuer,” your company’s articles of incorporation must restrict the transfer of shares (requiring board approval), and you must have fewer than 50 shareholders.
Under this exemption, you can legally sell shares to your directors, officers, close personal friends, and close family members without any formal disclosure documents. The key word is “close.” You cannot rely on this exemption to sell shares to a casual acquaintance you met at a networking event or a distant relative you rarely see. Doing so constitutes an illegal distribution.
Step 2: Utilize the Accredited Investor Exemption
When you outgrow family and friends, you must target “Accredited Investors.” These are high-net-worth individuals or institutional funds who the government believes are wealthy and sophisticated enough to protect themselves without needing a massive prospectus.
In Canada, an individual qualifies as an accredited investor if they have a personal income exceeding $200,000 CAD (or $300,000 combined with a spouse) in the last two years, or if they have at least $1,000,000 CAD in net financial assets. When using this exemption, you must have the investor fill out a Risk Acknowledgement Form (Form 45-106F9) to prove they legally qualify.
Step 2.5: Consider the Self-Certified Investor Exemption
To bridge the gap for knowledgeable individuals who do not meet these high wealth thresholds, Canadian regulators proposed a harmonized framework under Multilateral Instrument 45-111 (MI 45-111). Following a public consultation period that concluded in January 2026, this rule is designed to replace temporary provincial pilots (such as Ontario Instrument 45-510, which runs until April 2027, and similar rules in Alberta and Saskatchewan). Under MI 45-111, individuals with specific financial education or professional experience can invest up to $50,000 CAD per calendar year, allowing private companies to source funding from a broader, qualified pool of investors even if they do not meet traditional accredited investor thresholds.
Step 3: Apply the Minimum Amount Exemption
What if an investor does not meet the strict income requirements of an accredited investor, but they want to invest a huge sum of money anyway? You can use the Minimum Amount Exemption.
Under this rule, if a non-individual investor (like a holding company or a corporate entity) purchases a minimum of $150,000 CAD worth of shares in a single transaction, paid in cash, the prospectus requirement is waived. (Note: Recent updates to NI 45-106 restricted this exemption to non-individuals in many jurisdictions to protect retail investors, so always consult a lawyer).
Step 4: Explore the Offering Memorandum (OM) Exemption
If you want to raise money from the general public (average retail investors) without a full prospectus, you can use the Offering Memorandum Exemption.
An OM is essentially a “prospectus-lite.” It is a legal document that outlines your business plan, risks, and management team, but is far less expensive and less heavily regulated than a full public prospectus. Under this rule, individual “non-eligible” investors are subject to an investment limit of $10,000 CAD per 12-month period, while “eligible” investors are limited to $30,000 CAD. This limit increases to $100,000 CAD if the investor receives suitability advice from a registered portfolio manager, an investment dealer, or an exempt market dealer (EMD). Furthermore, under Coordinated Blanket Order 45-933, eligible investors can reinvest proceeds from previous investments in the same issuer without counting those amounts toward their annual limit, provided they receive professional suitability advice.
Step 5: File the Report of Exempt Distribution
You cannot just take the money in secret. Whenever you rely on an exemption (other than the Private Issuer exemption), you must report the transaction to the provincial securities regulator.
Generally, within exactly 10 days of the shares being issued, your corporate lawyer must file Form 45-106F1 (Report of Exempt Distribution) through the national SEDAR+ system. However, if you are relying on the Start-up Crowdfunding Exemption under National Instrument 45-110, you have up to 30 days after the distribution closes to file this report. You must also pay a filing fee to the securities commission of each province where your new investors reside.
How Much Does it Cost in Canada?
While raising money under an exemption is massively cheaper than drafting a full public prospectus (which costs $200k+), it is not entirely free. You must budget for securities lawyers to ensure compliance.
- Legal Fees (Exemption Compliance): Having a corporate lawyer prepare your subscription agreements and verify accredited investor statuses usually costs $3,000 to $10,000 CAD per funding round.
- Offering Memorandum Preparation: If you use the OM exemption, drafting the document and preparing audited financials will typically cost $15,000 to $40,000 CAD.
- Regulatory Filing Fees: Filing the mandatory Form 45-106F1 via SEDAR+ carries provincial fees. While Ontario charges a flat fee of $350 CAD, British Columbia charges the greater of $200 CAD or 0.03% of the proceeds, and Alberta charges the greater of $200 CAD or 0.025% of the proceeds. For larger funding rounds, these percentage-based fees can easily exceed $500 CAD.
| Exemption Type | Who Can Invest? | Investment Limit |
|---|---|---|
| Private Issuer | Close friends, family, founders | None (Must have < 50 shareholders) |
| Accredited Investor | High-Net-Worth individuals/funds | None |
| Minimum Amount | Corporate entities/holding companies | Minimum $150,000 CAD per transaction |
How Long Does the Process Take?
The speed of your capital raise depends entirely on the exemption used. If you are selling to close friends or accredited investors, your lawyer can draft the subscription agreements and close the round in 1 to 3 weeks. If you are preparing an Offering Memorandum, drafting the document and securing the necessary financial audits will generally take 2 to 4 months. Remember, after any money changes hands, the Form 45-106F1 must be filed legally within 10 days (or up to 30 days if you are relying on the Start-up Crowdfunding Exemption).
Frequently Asked Questions (FAQ)
Can I advertise my investment opportunity on Facebook?
Generally, no. Under Canadian securities law, general solicitation (advertising to the public) is strictly prohibited when relying on the Private Issuer or Accredited Investor exemptions. You can only advertise if you are using specific Crowdfunding exemptions or an approved Offering Memorandum.
What happens if I sell shares illegally without an exemption?
Conducting an illegal distribution of securities is a severe regulatory offence. Provincial securities commissions can force you to return all the money to investors, permanently ban you from acting as a corporate director in Canada, and levy massive financial penalties.
Do employees count towards the 50-shareholder limit for Private Issuers?
No. Current and former employees who received their shares as part of an employee compensation or stock option plan are legally excluded from the 50-person limit. This allows startups to issue shares to their team without losing their Private Issuer status.
What is the Start-up Crowdfunding Exemption?
Canada allows startups to raise small amounts of capital from the general public using registered online funding portals. Under this specific exemption, retail investors can invest up to $2,500 CAD per campaign, and the company can raise up to $1,500,000 CAD per year without a prospectus.
Do I need a lawyer to verify if someone is an Accredited Investor?
While not legally mandatory, it is highly recommended. The burden of proof falls entirely on the company issuing the shares. If you sell to someone claiming to be wealthy and they actually are not, you are the one who violated securities law. A lawyer ensures the proper Risk Acknowledgement forms are executed.
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